South Africa’s uphill struggle against inflation must viewed against a backdrop of global oil and food prices shocks, the country’s finance minister has said.
Domestic policies are not the main cause for the price surge – which has pushed consumer price indices well above their official targets in recent months, Trevor Manuel said in an interview with Emerging Markets.
“We can’t be more catholic than the Pope,” Manuel said. “Which country that has inflation targeting is not missing its target at the moment?” the minister said, on the eve of the African Development Bank (AfDB) annual meeting in Maputo.
“Brazil is above its target at the moment. Every country that has inflation targeting is over the target. With food and fuel, prices rising as they are, there are of course serious limitations, let’s just be realistic about this.”
Manuel acknowledged that inflation “is a dragon that has to be tamed, you don’t have a choice about it.” “It’s very important we don’t give up the fight for price stability,”.
Yet South Africa, as well as most African economies, is up against powerful forces, he said. “Inflation is a global problem at the moment. We have to examine all the issues. We have to understand there are a series of exogenous shocks.
“We are doing a lot of work at the moment to examine it, but right at the centre is the fact that we were able to bring inflation down from around 15% for more than a decade to as low as 3.5%,” he said.
In spite of a tight monetary policy, the inflation rate is now running again in double digit figures (10.6% in March), well above the 3-6% official target.
Meanwhile, South Africa has also been battling on the energy front in order to secure supply and sustain economic activity. “There is continued energy supply in key sectors, especially in mining,. The announcement by Eskom [the energy company] last week that they don’t need to undertake power outages any longer (because the savings that they were aiming for have been realized), is clearly very good news for the investment community and for output.”
But the country’s economic growth prospects have been clouded by such threats: South Africa now stands at the bottom end of the African growth forecast league issued by the AfDB, jointly with the OECD and UN Economic Commission for Africa, at 4% in 2008 (together with Kenya and Rwanda, against a regional average of 5.9%).